In a note to clients on Monday, Morgan Stanley chief equity
strategist Adam Parker wrote that the world had changed and
investors looking to old methods for valuing stocks would come up
with bad answers.

Or no answers at all.

The basic outline of Parker's argument is that companies like
Amazon and Google are changing the way investors need to look at
companies.

Whether you're calling for corporate profits to revert to a
long-term mean or looking at traditional price-to-earnings
ratios, the companies that dominate today's stock market don't
look like those that dominated 40 years ago.

"We have been publishing for years now about the apparent
disconnect between the US economy and corporate earnings," Parker
writes. "The economy looks worse than earnings ... but you
shouldn't argue that this disconnect between the economy and
earnings won't persist. Measurements like Okun's Law, the
Phillips Curve, the Taylor Rule, Shiller PE, and others are
thrown out as ways to point out obvious disconnects between
today's world and historical economic or profit
relationships."

Parker adds: "People have been saying corporate margins are too
high for years. Our judgment is that most of these metrics are
irrelevant for making any market-based assessment in time frames
less than a decade, if at all."

And so this chart, which many have said must revert to something
like the "norm," can stay elevated despite what the textbook
might say.

FRED

Amazon's sales, for example, are through the roof, but the
company continually pumps most of its money back into the company
rather than sharing it with shareholders via a dividend (or even
earnings), as investors might traditionally expect. Meanwhile,
Google doesn't have any inventory despite $70 billion in sales.

And so these companies make no sense under many of the frameworks
investors use to value companies.

Parker adds:

Think again about Black Friday being smaller than Amazon
Prime Day. This is a great example of how the new economy is
taking over the old and how historical relationships between
economic factors and consumption just no longer apply. You can't
use 1975 logic to analyze the 2015 world. Over 20% of
companies in the top 1500 by market capitalization in the US have
zero inventory dollars. The largest, GOOGL, is forecasted to be a
$70 billion revenue company with zero inventory. The ways to
measure the economy and corporate results are clearly different
today than they were 30 years ago, when only 5% of the biggest
1500 US equities had zero inventory dollars. So, in our view,
healthcare, consumer, and technology can perform well while
industrials and metals and mining perform poorly. That could last
for a while and doesn't have to mean revert because in 1975 it
seemed logical in some textbooks. People thought Pluto
was a planet back then also, and that the Red Sox and Patriots
would never win championships. They were wrong.

And so when you think the market must be a certain way for this
that or the other reason, Parker thinks your thinking — not the
market — is the real problem.